Women Winning Divorce with Heather B. Quick, Esq.

#106 Taxes In Divorce With Karen and Catherine of My Divorce Solution

Episode Summary

In this episode, Heather Quick, attorney and owner of Florida Women’s Law Group, discusses tax implications to keep top of mind before, during, and after divorce with Co-Founders of My Divorce Solution, Karen Chellew and Catherine Shanahan.

Episode Notes

About Our Guests

Karen Chellew is Co-founder of My Divorce Solution. With over 30 years of legal experience, Karen serves clients as a legal liaison – the central link that assures divorces are professionally executed as efficiently as possible. Karen is also a certified QDRO Administrator, Founder and President of Sisters U Foundation, advisory council of Support Pay, and an Auditor of East Rockhill Township. As a divorced mom of three, Karen knows what it’s like to navigate the dark waters of divorce alone and in the dark. Karen cofounded My Divorce Solution as the company she wished had existed in her divorce. She’s committed to helping families navigate divorce differently – with financial clarity – not fear – driving decisions and compromise.

 

Catherine Shanahan is Co-founder of My Divorce Solution. With over 30 years of experience in the financial industry, Catherine serves clients as a Certified Divorce Financial Analyst (CDFA) and trained mediator. A Professional Daily Money Manager, Catherine is also a former VP of the Bucks County Collaborative Law Group, American Association of Daily Money Managers, Institute of Women Business Financial Analysts (IDFA), National Association of Women Business Owners, advisory council of Support Pay, and the Association of Divorce Financial Planners.

As a mom of five and financial expert, Catherine’s experience with divorce left her wishing for better information, resources, and process for the financial separation that comes with divorce. As a result, Catherine co-founded My Divorce Solution – the company she needed in her divorce.

 

 

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"Women Winning Divorce" is a radio show and podcast hosted by Heather Quick: Attorney, Entrepreneur, Author and Founder of Florida Women’s Law Group, the only divorce firm for women, by women. Each week Heather sits down with innovative professionals and leaders who are focused on how you can be your best self, before, during or after divorce. 

In these conversations, we are looking at how women can win at life.  With our guests, we enjoy the opportunity to explore ways all women can win and enhance their life, no matter where they are in their journey, because divorce is just point in life, not the end and not what defines you, rather it can be a catalyst for growth. 

Come join the conversation on social media, and join our Facebook group, Women Winning Divorce and send comments and suggestions, we want to bring you content that helps move your life forward.

 

 

 

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Women Winning Divorce is supported by Florida Women’s Law Group

 

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Episode Transcription

 

Heather Quick: [00:00:00] Welcome to Women Winning Divorce. I am your host, Heather Quick. I am an attorney, entrepreneur, author, and founder of Florida Women's Law Group, the only divorce firm for women by women. I love thinking big, thinking outside the box, creating creative solutions for women, and empowering women to win in all aspects of their life.

Our approach at Florida Women's Law Group is to provide women with a strategy to not only achieve their objectives, but win at life. I believe that what may show up as adversity is simply an opportunity to change and improve your life. In each episode, I sit down with Innovative professionals and leaders who are focused on how you can be your best self before, during, and after divorce.

In these conversations, we are looking at how women can win at life. I have the unique opportunity to meet women when they are at a transition period of life. But that is only the beginning to becoming your best self and winning at life on your [00:01:00] terms with our guests We enjoy the opportunity to explore ways all women can win and enhance their life No matter where they are in their journey because divorce is just a point in life Not the end and not what defines you rather a catalyst for your growth Welcome to this week's episode of Women Winning Divorce. I'm Heather Quick, owner and attorney at Florida Women's Law Group. Today, we have two special guests, which is a first for Women Winning Divorce.

So I'm so excited. We are joined by Karen Chellew. and Catherine Shanahan of My Divorce Solution. So, Karen has over 30 years of experience in the legal field and currently serves as a legal liaison and certified quadro administrator and of course co founder of My Divorce Solution. Catherine is a CDFA, a mediator, and the [00:02:00] other half of My Divorce Solution.

Together they also host a podcast entitled We Chat Divorce. So welcome 

Catherine Shanahan: Karen and Catherine. Thank you. Thanks for having us. 

Heather Quick: Well, this is so great. Ladies. I, um, like I said, I, um, have not had two guests at the same time. So we're getting double the content today. I'm really excited about that. And, um, we're going to talk about taxes.

Um, and this is very exciting because. Well, I say exciting, but it is exciting because there's so much that we don't know, right? We don't know what we don't know in regards to taxes, but yet they're so important because they're got to pay them. And if you don't, you can get in a lot of trouble. So, um, I am very excited about this, especially when going through a divorce.

So I would love for you ladies to share with me and our listeners a little bit about. How you got to where you are and [00:03:00] ultimately to the podcast and working together. So whoever wants to go first, 

Catherine Shanahan: I'd love to hear. I'll let Karen take that away. Okay. The fun thing about having the two of us is when one isn't saying something, the other one will chime in and say something.

So you're going to get a lot of perspectives today. 

Heather Quick: You are. Yeah. Love it. Love it. So Catherine and I 

Karen Chellew: met many years ago, and maybe it wasn't many years ago, but it seems like many years ago to us. Um, by a colleague introducing us and I had a nonprofit at the time where, um, we gave women resources and Catherine, um, she was a certified financial planner and she came and would speak to our group.

So, she, uh, was expanding her business. And she really realized that there is a gap in [00:04:00] financial clarity. Thank you And legal requirements when divorcing, and she asked me to come on board and start this, um, business called my divorce solutions, which really provides that integration so that people can have more clarity and more knowing when they're approaching the divorce process, because based on our personal and professional experience, we realize that preparation is key.

And Heather, you will probably vouch for that a thousand times over, right? When you have a prepared client, you can do so much more, they can do so much more, and their divorce can be processed more easily, more effectively, and 

Catherine Shanahan: more clearly. You know, it was interesting when we, when we got together, you know, being financially sound and I'm very comfortable around numbers.

Um, I have an accounting degree. I was raised that you take, you know, the women take care of the money in the family, even though my dad was an accountant. So for me, my money story was. It was [00:05:00] really good and strong. But when I went through my divorce, it was scary as hell, right? It was just like, Oh my gosh, now I'm making these decisions for myself.

And I know I can make smart decisions, but I didn't realize the protection you needed in a legal language. So at that point, it was like, I need to help women just become financially informed so that they feel more confident in making really smart decisions. And so I, but I realized it was more than that.

You had to set them up to understand how to work with their attorney and what were the documents required for that. And it was so much better getting prepared. And Karen taught me that, you know, because I, with her experience, she was like, well, wait, it's more than that. And it's so true. So now at My Divorce Solution, we've been able to fast forward and have this preparation platform.

So we are, our divorce financial specialists are CDFAs and we're trained mediators. We're not mediating cases. That's not what we're doing. Um, and we don't invest money for anyone, but we get you financially prepared. We don't have a stake in the [00:06:00] game. So you have enough knowledge to go talk to your attorney differently.

You know, instead of your attorney saying, what do you want? Based on and you're basing everything on emotions, you now get to go to your attorney and say, here's what I have. Here's what I think I need. What can you do for me legally? Right? And that's such a better client for you. And it's so much more empowering for the person going through that.

And that's what I love about what we do. 

Heather Quick: Yeah, and it's, you know, there is so much when you're entering the divorce and what I found no matter what your experience is professionally, but then when it's you and it's your money, your family, your life and your emotion, you know, just so much comes in and it is overwhelming and.

To not too often, but I think many times many women will compromise sacrifice financially because they believe they [00:07:00] truly believe that they need to do that in order to maybe safeguard their children, have time with their children. They trade that off and it really ends up hurting them so much in the end.

Um, but that's, you know, where they are unless They can really, you know, have a good conversation, candid conversation with their attorney and begin to understand really the reality of their situation, whatever that might be, and that maybe they don't have to make these kind of compromises based on the laws in their situation.

Yeah, 

Karen Chellew: true. You know, so many people who began. Working with us and preparing to get divorce, you know, they, they come to the table with, they've already started negotiating. They've already made decisions about. Well, I don't want my spouse's pension because they're really, they said, I can't have it. And they, they already have a dialogue going in their head before they ever get started.

[00:08:00] And 1 of our highest challenges. Um, and so what we're trying to do first is to try to neutralize that so that they can get prepared. Like, let's just start with your cash flow. Let's just get the financial documents. Let's understand that first and then you can talk about what you want, what you don't want.

You can, you can compromise as much as you want, because you'll understand the financial impact. But getting people to back up a little bit, um, because, you know, they. They don't know a lot of things and they kind of lunging to make decisions because, you know, they're, they're the emotional trauma that all is really directing their process 

Heather Quick: in that moment.

Yeah, it really is. So it's so hard to separate those things. And, you know, and I understand that it's not like we're asking them to separate, but. Well, let's at least maybe compartmentalize and understand something on one hand, and [00:09:00] then, you know, yes, we understand the emotional side, the family side, and then be open to your options, but it's overwhelming.

And you're right. They have this whole dialogue because, of course, this is the person they've been married to, so they've heard what they said, and then oftentimes it's like, well, no, that, that should still work. Absolutely not true, right? That's a property, right? And you're entitled to have like, that's not even worth arguing about.

Like, it's just such a given and in a lot of cases, but they have no idea because there's just like, absolutely not. You know, I work, that's mine. Right? And so they come in with this narrative, this belief, and it takes a while for them to really, I think, believe and understand that, no, they're not making things worse.

They're not being greedy. Like, this is, you know, You've got to set yourself up in the best way possible 

during 

Catherine Shanahan: a divorce. There's so many people that come in Heather and they and I'm sure you hear this, um, and they come in and they say, Oh my gosh, I'm so embarrassed. I don't have any [00:10:00] retirement money. I, you know, I stayed home to take care of the kids.

So my husband has all the retirement money and now I don't have anything. And it's not, and they go on and on, you know, they're embarrassed that they don't have it. And when they realize that it doesn't matter that it has your husband's name on it, that it's still considered a marital asset. It's like a, it's like a light bulb is being open, uh, turned on because they just have been so conditioned to believe that because it's in, not in their name and they stayed home to take care of their children.

They're not entitled to it. So that little bit of confidence when you get that financial knowledge, it's like a little seed, right? And it starts to grow. And the more knowledge you get, the better the process will be for you. Absolutely. Now, um, 

Heather Quick: tell me like about the, um, the business a little bit, uh, my divorce solution, because I do think it's, it's amazing that, you know, these things exist so important.

Um, and I know you both talked about. really [00:11:00] helping women. So tell me a little bit about the business and stuff before we kind of get into all our taxes and all that. Cause I really would like to know a little bit more about it. 

Catherine Shanahan: Well, we started out being just for women, but it quickly has turned to, we help women and men.

We have more and more men calling. And the good thing is we're not attorneys and we don't give legal advice. So we can work with both parties. So you can either come individually and we invite your spouse to participate. So he's not the client, but he's a participant. We have a lot of, um, high net worth people that will do that.

And then we have a lot of clients who are hoping to go to mediation. So they want to get prepared. So they come together and then they're totally prepared for mediation. Um, so it's really interesting Karen, right. To see the shift that has happened, um, with women and men, we still majority, I would still say it's a high percent, probably 60 percent at least women, and then 40 percent men.

Um, but we were, we're able to create a divorce preparation platform. It's our own, uh, proprietary [00:12:00] software that we've developed. So when you come to our process, whether you have an attorney yet or not, you start getting prepared. So we start with your income and expenses, like Karen mentioned, to go through your lifestyle analysis and that, as you know, that's very important for doing your state affidavit right, if, or your, uh, need for income, um, or your ability to pay for support.

So we make sure that's thoroughly completed. And then they upload their financial information and the data in their, in their portal. We inventory that and organize that. So you, as the attorney get it delivered all organized and digitally. So it's very easy for you to find anything that you need for your due diligence.

And then we have an output of a financial portrait. Um, they get to meet with their divorce financial specialists, their legal liaison and their client manager. Um, and through those meetings, we assess all the financials that have come in. So we're able to go through every asset and every debt and then tell them what they should consider.

So they'll come to you with a list of questions. You know, if I keep the home, [00:13:00] these are the things I should be considering, right? You know, so we don't tell them what they could get or not, but we talk through their scenarios. So the nice thing about that, they're unraveling their emotions where, Oh my gosh, my husband said he has to keep the pension and I have to keep the house.

And we'll say, okay, let's see what that looks like. And let's do another division scenario. Okay. And so then that is all wrapped up and delivered to their mediator or their attorney, um, to then say, and, and if the spouse gets involved, another thing I love is that if they don't give us documentation, you'll see a footnote in there requested this document, but not received.

So, as the attorney or the mediator, you can go right to that and say, well, why haven't you, you know, why haven't you submitted this? Or if you're doing a subpoena, you go right to what is missing, right? I'm sorry. It really just streamlines that process and it takes you out of getting the financial information together as the attorney.

And it puts you in a position to really be the great attorney you are by knowing exactly what they have, what she needs, what she wants, and do a balancing act of all of that to what she can legally [00:14:00] get. Right. And our clients are already emotionally going through it. Um, so I get very excited about it because we've been able to bridge that gap between the financial assessment and the legal requirements documentation wise to really get an informed client, um, going through the process.

And I don't know, Karen, if you want to add, I kind of took over there because I get so excited. No, that was really good. 

Heather Quick: You did a great job. And 

Karen Chellew: Heather, you know, you'll be really happy to hear as most of the attorneys we work with are happy to hear that, um. Along with the financial portrait package comes that financial disclosure.

So, we typically do get on the phone with attorneys when they're involved and say. How do you want this output to be? Because every attorney fills those documents out very differently, right? Um, according to their style. So, you know, not only do you have a client coming to you with that draft document, it's not final, of course.[00:15:00]

But they're coming to you being able to articulate and understand the data in that document. I was, I do many of the income and expense and I was just doing one before this podcast and you know, it can be a little tedious. It is not a little, it's a lot tedious for them to be realizing those line items the very first time.

So, you know, when you get to, let's just say real estate taxes, there's a dialogue going on in their heads about. Oh, is that what it what all does that cover, you know, and as you keep going and going, they need to talk it out. But by the time they come to you with it all wrapped up in a bow. Those conversations have been had, they own the information, they're able to articulate it.

They know where they spend money, how they spend money and why they spend money so that you're able to take that information and do something with it by then. You know, they're beyond. Um, [00:16:00] Overwhelming. I guess that's the best word or the intimidation of it all. They really are ready to talk about, um, their 

Heather Quick: financial division.

Yeah, that's amazing because it's so much fear, right? So then hopefully, you know, you've bridged the gap with a lot of that fear because now they have information. And so, at least they know what it is instead of just like, I'm scared. I don't know what it is. At least now they know right? What their financial landscape looks like.

Absolutely. Now, so, of course, today we're talking about taxes and how they can be, you know, intertwined or they are definitely intertwined in the divorce process. Um, and so I'd love for 1 or both of you just to share where taxes, you know, where they do intersect in the divorce process and in the legal system when someone's going through a 

Catherine Shanahan: divorce.

Well, there's a lot to go on with taxes and divorce, right? And I will say, if you're going through a divorce right now, um, one of the best part about taxes is [00:17:00] collect the supporting documentation that goes with that tax return. So many of you out there just going to sign off on your tax return as you have done in many prior years and we get that.

But now you're sitting in an opportunity to say, okay, before I sign this, I need the supporting documentation. So it's 1099s, W 2s, um, there's so many statements that go along for your account to prepare that return. Um, so that's my, that's going to be my takeaway today. You have to get the supporting documentation.

But you know, even more than that, you know, a lot of times you're hearing people right now, this is a crazy month, right? March is big on divorce. I don't know when this is being aired, but March is big on divorce. And. Um, they're already deciding are we filing jointly or are we filing separately and December 31st of the year is the of the year is what what your marital status is on December 31st of 2023 is what you can file.

You can file married filing, [00:18:00] um, jointly marry filing separately and in some instances, maybe head of household. Um, But the, before you say okay to your spouse, yes, I'm going to file married filing jointly this year, you should have an accountant do a tax comparison because it's a great negotiation tool.

So you figure out if you filed married filing jointly, the wage earner, the higher wage earner is going to be the one that benefits the most. So if it's your spouse, you want to know what the tax savings is to file that way. And then you want to run it. And then you want to run it married filing separately and see what your tax ramification would be for that.

So, for example, if you filed married filing jointly and you got a refund of 20, 000, that's great. If you filed married filing separately and you would have gotten a refund of 6, 000. You would compare [00:19:00] those two and negotiate that out, right? So you want to really look at what the difference is so the other party is more favorable for them.

So you might get something else that you want in your negotiation. So you really should take a little step and get your own accountant and do a comparable, um, tax, uh, comparison. 

Karen Chellew: Other on that married filing separately, it's interesting that a lot of people can even approach that from an emotional space, you know, out of anger or bitterness.

You know, they just don't want to. Be connected to their spouse for any reason whatsoever, but it is important that, you know, that calculation and, you know, the impact of that calculation and then, of course, make a decision. Um, because it may change your mind for a variety of reasons. So getting those analysis done, um, are very, very important.

A lot of people during this time, um, you know, when they're [00:20:00] building their financial portrait or looking at their taxes, they don't even have their prior year tax returns and they don't really have a way to get it. Maybe their spouse did their tax returns or a family friend that they really don't have access to.

And so we work with them, um, filling out the, it's called IRS form 4506. That they can get a full tax return. You can go online and get a free tax transcript, but really you need that full tax return. And so that is really a way that people can get their prior taxes that they wouldn't be able to otherwise.

And that has really been, uh, empowering for a lot of people to be able to get that information and know because it's In this day and age, we see it so often that a spouse will sign for their other spouse via e file or whatever, and that spouse may have never seen that tax return, and tax returns were filed without their knowledge, and maybe even this year they may be filed without their knowledge.

And then that's when we tell them to go [00:21:00] ahead and speak with an attorney or an accountant about innocent spouse relief, um, if that pertains to any specific relationship. So, you know, there's a lot of remedies in the tax discussion that people just may not know about. But again, it's important to explore so that you can make really good financial decisions.

Heather Quick: Um, yeah, that is such great advice. I appreciate you ladies saying that because right, like it starts right now. Say, may you may or may not be actually in the middle of the divorce, but you know, you're going to. And then there's that question on how to file and begin to stand up for yourself and educate yourself.

Like, oh, wait, this is why he wants to do this. He's going to really benefit. So what about you, right? Where do you fall in that versus, you know, is that the husband saying, well, no, we're using that refund to pay off this or that. And it's like, well, wait a minute. Why don't you just find out a little bit more [00:22:00] information so that you can have some say in that, which is great advice.

Catherine Shanahan: Well, the other thing with that, Heather is, you know, there's a lot of times we find that people have overpaid from prior years. Are they paying forward to this year? So you don't want to just sign your tax return. You really do have to look at that bottom line. You have to see. So if you're so that your spouse might say, oh, we're not really getting a refund this year.

And it could be true. You might not physically be getting a refund, but it could be in the system. So the refund could be applied to next year when he's filing on his own or she's filing on her own. So they'll get the full benefit of that. So just don't sign and take someone's word. Don't call anyone a liar, but like at MDS, we need to verify documentation.

That's what we do. We don't we just verify the documentation so that the data all matches up with, um, documents. So you do have to be careful of that too. When you're looking at your tax returns this year. [00:23:00] Yeah, I was going to say something else about that, but now I forget, but maybe you'll say something that will trigger it.

Karen Chellew: I'm going to say something to trigger something because we run into this a lot to Catherine. If you can talk about it when people change their W for. To change their tax deductions when they're divorce 

Catherine Shanahan: planning. Yeah, not only when they're divorce planning, but yes, actually when they're divorce planning, which is 

Karen Chellew: very different than divorce preparation.

Yes, divorce planning is someone planning to get divorced and making right financial decisions in that space to. 

Catherine Shanahan: So you can have an exemptions that you take on your W fours, and that affects the net result of your paycheck, right? So they'll hold more taxes or they'll hold less taxes. So a spouse may say, how am I supposed to give you that when my income you see what's coming into the bank account every month?

Right. And you're thinking logically, Oh, he's right. Or she's right. That is the amount that's deposited. Well, let's [00:24:00] back up and check the withholdings that are being withheld from that, that paycheck. But, but even post divorce. There's a lot of folks out there who are getting RSU restricted stock units.

They're getting equity compensation and you may be entitled to that in your equity, uh, equitable distribution for future risk. You need to make sure that you are reconciling. What your spouse is now claiming as his taxes because you're going to get the net number. So you want to make sure you have a tax analysis to make sure they're not over deducting taxes so that your net number is less for you to receive when those options become available.

Very, very important. It happens very often. Um, and you need to have someone that's following that for you. Um, because it could be thousands and thousands. I know it is thousands and thousands of dollars in mistakes there. 

Heather Quick: Right. And again, you don't know what you don't know. And so that's when, you know, [00:25:00] educating yourself and at least to know that, okay, I've got to have a professional looking at this for me so that they can see, you know, these particular nuances that, you know, you wouldn't generally recognize on your own.

Now, what are the tax implications for child support payments? Um, you know, and or alimony. Um, I know our listeners want to know this. I, I know most of the answers here, but, um, and how does the tax treatment differ for the paying spouse versus the recipient, 

Catherine Shanahan: if at all? Yeah, well in 2019 they changed that law and that's why we were a little crazy in 2019 Everyone wanted to get divorced.

Some people wanted to get divorced right before it or right after it, right? Right, right. And so remember that karen? It was a crazy time so it was an emergency divorce became an emergency in 2019 and that is because The, the taxable standpoint changed. So it used to be a taxable event for alimony prior to 2019.

So if you got divorced prior to [00:26:00] 2019, you may be one of those people who are paying taxes on your alimony, and the payer of the alimony is getting that as a write off as a deduction. Well, post 2019 alimony is no longer taxable to the party receiving the money, and it's no longer deductible to the payer.

Child support has never been taxable. That's not a taxable event to either party. And 

Heather Quick: no deduction either, correct? 

Catherine Shanahan: Nope. For the child support. There's no taxable ramifications whatsoever, no deductions at all. And I also want to bring up, if we can, was there anything else about that topic? No, and I 

Heather Quick: think it, well, I think, you know, for our listeners.

Okay, because child support is not income. It is to care for your child, rent, food, electricity, transportation, whatever. It's not income. It's not your paycheck that you're getting, which, you know, too often, you know, men say to, Oh, well, you know, I pay her all this child support as if that is going to cover even the [00:27:00] grocery bill, depending on your amount of children and their ages, right?

Or their clothes when they're growing rapidly. 

Catherine Shanahan: And I'm glad you bring that up because it's so important for people to understand that because you have to also think about extracurricular expenses that that child support does not cover all of that. So, you need to negotiate that in your deal and I hate, I have to say I hate when I see an income differential of 80 percent saying dad's making 80 let's say mom's making 20 and then you see extracurriculars are being split 50 50.

Yeah, you know, you, you really should talk, you know, through that before you sign and agree to that. But also, in addition is that I see a lot of people argue over who's taking the tax exemption for their child and their tax return. Again, you need to meet with your independent accountant. Do not meet with your joint accountant.

Go to your own, find somebody that you can go talk to and see if you can even qualify for an exemption or if [00:28:00] your spouse even qualifies for it. Because I've seen people fight thousands of dollars over getting that claim and they're not even able to use it when it comes down to an IRS rule. So. Again, this is a great comparison.

You go to your accountant and say, okay, we have three children. Would it benefit me to claim them? And what would be the benefit for my spouse to claim them? And then negotiate that dollar amount. Maybe that differential is what you put towards education for your children, or you put towards extracurricular activities.

Um, so, you know, you let your spouse take it, but then that spouse has to pay X amount towards. camp each summer. You know, there's a way to negotiate that out, but get again, my divorce solution is set up for you to be financially prepared. That's the whole purpose, right? We don't give legal advice. We're not attorneys.

Um, but we know how to gather all the considerations so that you can go get to a good agreement. And probably mostly because you're informed. Yes. 

Heather Quick: And you are [00:29:00] also able to help your clients ask the right questions. Like you were saying, like, cause that sometimes is so much of it, right? Because you. Don't know, so then you're not really sure what kind of questions should I ask?

Because you don't even realize, well, this is an option we should really look at. I think when there is such a disparity in income, you really do want to look at, well, how beneficial are these deductions? To 1 spouse versus the other, you know, so that we can quantify it dollars. So let's. Be smart about it and not everybody can do that, but certainly sometimes through mediation.

We can I say, like, this, this means nothing to 1 party and it will make a financial difference over here. So let's. You know, be. Cognizant of that rather than saying, we're going to alternate the children. And then when there's only one, you know, or you get one, I get one. And then we alternate, which is just basically the, which much courts will [00:30:00] default to, unless you're able to, you know, come up with a reason why 

Catherine Shanahan: not.

Right. And then you could look like the hero if you let your spouse take them, right? Sure. You know what I'm going to, I'm going to concede here. Go ahead. Spouse, you take them and I appreciate you paying for their camps this summer. Because that's probably a bigger savings for you than it would be the tax deduction that you're getting on your return.

Because camps are so expensive, right? Or anything these kids do is so expensive. 

Heather Quick: Exactly. 

Catherine Shanahan: Anything they do. Any of that give and take, you look like the hero and then at the end of the day, you get more of what you really need. 

Heather Quick: Absolutely. Now, as we're talking about children, now, how do you advise, um, your clients or, you know, in situations where They have set up a 529, you know, some type of college fund for their children.

Um, and and how does that get divided? And are there any tax implications in [00:31:00] that kind of fun? 

Catherine Shanahan: I'm looking at Karen, because there's so many scenarios with this. That is insane. Right? So, I don't know if you want to answer it. You want me to answer. 

Heather Quick: Yeah, you go ahead and answer. I'll fill in. 

Karen Chellew: She's definitely hands down the financial expert.

Catherine is. A wizard. 

Catherine Shanahan: So well, thank you for that. I don't know about that, but um, I'm a logistical thinker, right? So with the 529 plans or any kind of college savings plan, it's really interesting to see what happens here. So in, in the old school, whosever name it was in was a custodian for the kids. And it was supposed to be used for the kids of your family or your grandchildren.

You can kind of pass down money, right? But oftentimes we'll see. One party putting their bonus into that account quickly to prepare for divorce, and they take it out. Also, we'll see the withdrawals because [00:32:00] the only fear there is that the IRS is going to audit you. And then you're going to get a penalty.

And then you might have to put the money back but you typically don't have to put money back if you've already spent it you're just going to get a penalty. Well, people who do things like that don't really fear the IRS auditing them. By the time they would get to them, they think, well, who cares? I'm taking that 80, 000 because I'm taking it.

Heather Quick: Right, because it was my bonus, I put it in there, I'm taking it out, 

Catherine Shanahan: right? And I'm taking it out, and if the IRS gives me a penalty one day, then I'll fight it, right? Because they don't care, right? So, so, don't think that these monies are just being used for your kids and you can't be a custodian, because some custodians are allowing you to be added as a joint custodian now.

Uh, and you have, again, this is where we get you prepared. You need to know that before you go argue anything, but it also we've seen that we're in every state. So we have seen in some areas where it is considered a marital asset. So if you have 300, 000 in there, that's going on [00:33:00] someone's column because you know, you can kind of get to it.

So it's, it depends on how it's being added, if there's been withdrawals. So there's a lot going on. Um, when you see these money in plans. I want to also caution you that when you're negotiating and you're saying because I don't think any court Heather you could correct me here this is more legally will make anyone pay for anyone's college.

I think it's rare that they make it. It's 

Heather Quick: rare right once you get to a judge now often, you can agree to it. But then that's still difficult on the enforcement, right? Because they are an adult. So, yes, it is, I would say, extremely rare if, you know, it's certainly in Florida because they're considered an adult at the age of 18 and, you know, maybe some other states, it might be more common because they will allow support until they're 23, even 21.

So, it will differ. Yeah, yeah, it will differ and it will also differ. I [00:34:00] think if there's part of agreement, I would believe in how enforceable that part is. Again, you know, usually it does depend upon the income, but in Florida, yes, you would have to agree that you would handle that you would, you know, cover college expenses.

And, you know, if done, so I would, I would hope you'd prepare that with, like, some boundaries on that financial. You know, amount, but it's very difficult to enforce if they haven't had it. And, you know, definitely we've had these plans with certainly with the 529, the Florida prepaid. I don't know that we have, because that's a little bit different.

I think than the 529, but, um, yeah, the 529, it goes to either side or you agree. It remains the property of the children and remove it and it's going to just be used in that way. For them, 

Catherine Shanahan: but it comes to the college planning. If you are 1 of those people who, you know, you'll say, okay, [00:35:00] parties are going to split college costs.

Let's take that as an example, right? Or the differential parties are going to one spouse is going to pay 80%. The other one's going to pay 20. okay. Fair enough. Whatever they agree to that. What's not fair is when you agree to that. And the 529 is in 1 party's name, and they decide to use that money as their percentage share of payment.

Tricky. 

Heather Quick: Ooh. Ooh. Yeah. 

Catherine Shanahan: Absolutely. Yeah. You have to make sure that you're considering that it's a consideration before you agree. Don't ever agree to pay for college, especially if there's a 529 plan, unless you say something like the 529 plan will pay first and then we'll pay the differential after that.

Karen Chellew: Because or the 529 will be paid later because a lot of financial planners want you to hold off until the junior year to start using that. For a variety of reasons, so [00:36:00] it can go both ways. 

Heather Quick: Yeah, certainly. So that makes sense. It is. And, um, now what about back to taxes is the transfer of property between spouses, you know, as part of the divorce settlement subject to taxes.

Catherine Shanahan: Uh, so that's another good question. So is it subject to taxes? Not really. If it's a marital exchange, however, you do have to consider if you're putting. Tax deferred investments on your side of the column versus currently tax assets on your side of the column. They're not really fair and equitable there.

So 1 has a greater, um, tax benefit than the other 1 does. And so do you balance that out to get your equitable distribution to be fair and equitable? So, for example, you're taking a 100, 000 CD and your spouse is [00:37:00] taking a 100, 000 Roth IRA. That Roth IRA has already been taxed. So when it grows to be 150, 000, You're not paying any taxes on that.

So it's tax free money. Your CD, whatever interest it's earning is taxable to you, right? So you're paying taxes. Another viewpoint to that is if you need cash to go fix the roof of your house and you took the 100, 000 CD, okay, there's no ramifications for taking that. You're paid taxes on it and you're going to take out your 20, 000 to fix your roof.

If you ended up walking away with a traditional IRA. And you need a 20, 000. You have to pay a minimum of 20 percent when you liquidate it. So you're taking, you have to take out 24, 000 to get that net 20, 000. So that's not really fair and equitable. So that's where taxes are important when you're negotiating.

Now, let [00:38:00] me 

Heather Quick: ask you this also, because, um, I do think it's important, like, I wanted to talk about, like, with assets and then capital gains and like, how should somebody really even begin to understand. What what implication they will have with that and if it, you know, I think capital gains. Is going to apply no matter really what your income level.

Uh, so if you could explain that a little bit more for our listeners. So 

Catherine Shanahan: it's really important if you have a brokerage account, let's say in the brokerage account, an example could be Fidelity, Vanguard, Morgan Stanley, TD Ameritrade. So that's a brokerage account and you usually have a financial planner.

Unless it's a Vanguard, you could do it on your own. And what that means is you're buying mutual funds or you're buying stocks and bonds and you'll see you might have a 30 page report and it looks very confusing and don't, don't shame yourself because even me as a financial, they've gotten so complex that when I see some of the statements, I'm like, holy crap, [00:39:00] who follows this?

Right. And I know this stuff, but what, what, what we see happening often is that bad. Let's say that account is worth 500, 000 immediately. Everybody puts 250, 000 on each column. And let's just say husband wants to keep that account because he's an active trader and he's the one that follows it and you don't really know.

So you just want your 250, 000 and you decide to take something else or you just, and so they just give you 250, 000. Well, it's really hard to account for market fluctuations that way because it changes daily. And it also is hard to account for the taxes that could be due. So what we like to see happening is either you do a transfer of shares and kind of which they just split the shares in half.

So you each get each of the shares and the cost basis goes to both of you. You get half of the cost basis and the other party gets the other half. So on that 500, 000 example, let's just say you put 200, 000 into that count 15 years ago, and it's now worth 500, [00:40:00] 000. Whatever the cost was to purchase those shares is your cost basis.

And it steps up each year when you get those 1099s and you pay your taxes on it. So that cost basis will change throughout the years. But when you go to sell that money, you're now setting the markets at its highest and you're selling it maybe three or four times the dollar amount that you bought and that you added.

So there's a tax ramification there. You do have to pay the taxes. So you need to consider that when you're going through a divorce on what account you're taking, you don't take it in the account for ease. You take it knowing. What the implication is and what, and it could be a beneficial account to keep too.

Like maybe this is great for your retirement planning because you did come in at a low price. Um, and you don't want to take it. So there's a lot of things to consider tax wise when you're choosing brokerage accounts.

Heather Quick: Yeah, that makes sense. And in similar, I mean, you know, depending on how the retirement account is, but I, I do want to talk about those tax [00:41:00] implications because, you know, generally from the attorney standpoint, you know, we really do separate out retirement, right? It's not equal to cash or the house and.

You know, try to divide those equally. Um, and you can certainly mention, you know, the orders that are necessary for that. But that's with us is presupposing you're going to keep it in there and let it grow. Yeah, but I think there's some tax implications that would be really important for our listeners.

Catherine Shanahan: Well, you know, a lot of people are seeing Roth IRAs and traditional IRAs, you know, a Roth IRA, you should automatically know it's a better IRA because the taxes have already been paid. And my guess is you paid the taxes while you were married, so you should reap the benefit of that. So don't just say, okay, I'll keep my traditional IRA and you can keep your Roth because there's a big tax difference there.

And one is growing tax deferred, which will be taxed when you start taking money out. And the other one has already been taxed. So it's growing tax free. The big thing we see with this [00:42:00] is people who are no longer working for an employer that had a 401k there, but they never took the steps to roll it over into an IRA.

They've left 401k. If you're dividing that account, you have to do a quadro, which Karen can speak better than I can about. Um, but what you, what you should know is you have an option to roll it into an IRA. This way you can avoid a quadro. And once it's rolled over, then you divide it with just a letter of instruction.

So that could save you a lot of money just from your attorney having to do your quadro and then filing it with the court. Um, and then you just can roll it over after that. 

Heather Quick: But that would be both people rolling it over into an I. R. A. Prior to 

Catherine Shanahan: division. What would be the person who's 41 K? It is titled. It is.

Yes, they roll it to an IRA and then a letter of instruction rolls half of that into the other party. The receiving parties. I. R. A. Yes. 

Karen Chellew: Yeah, what most people don't understand and who would I [00:43:00] say you're a divorce expert the day you get your divorce decree, right? Or maybe a couple of months afterwards. Um, is that when, you know, the whole process of.

Dividing accounts with quadros qualified domestic relation orders is very expensive. Because. You know, you have to pay usually two attorneys to review the doc one, one, a quadro administrator to prepare to prepare it attorneys to review it, go back and forth a couple of times, and then it gets filed and the plan administrator typically has a fee for the division of that account as well.

So, you can be upwards of 000 dividing a retirement account. One of its, as Catherine said, a prior employer. You know, we often recommend, or have a consideration of rolling it over into a non ERISA governed plan so that it can be more economically divided. Some attorneys bristle at it, but, [00:44:00] um, it really does streamline and make that, um, division much more, um, Like I said, economical well, and, 

Heather Quick: uh, well, much easier to write because I mean, oh, my goodness, you know, for our listeners in who get frustrated when it takes time.

So, do we, as attorneys, because we may have to, depending on the company. You know, we have staff here that will do a lot of them, but then some it's like, no, you have to have that specialist draft it. Then you have to get it approved, right? We don't want to get a court order enter that that is not going to then be followed and.

That can really take some time. And then if they kick it back and say, no, you have to change. I mean, it ends up sometimes taking like 6 months, which it for those who have already been through the process. This is after the divorce for our listeners. Right? So you might be like, oh, 6 months. Tell me, you know, this is after you've spent 9 to 12 months getting a divorce.

This like loose end. [00:45:00] Which must be done correctly, uh, and it's very important. You know, you want if you are for any listeners who've been divorced and maybe, um, many years ago, because definitely some of you do come to our office with, you know, a 10 year old, um, divorce decree where you're supposed to get this retirement.

Yeah. Go find that and do that today. Uh, we recommend all our clients, we do it, you know, right, right after the divorce and get that money moved. Um, cause it's, it's crazy. We still have people coming, you know, that, Oh, 

Catherine Shanahan: there was, they never did it. I got a call run a big case where the husband never, never did the quadro.

He worked for a big company. Goes to retire. He can no longer, he can't not longer. He cannot retire because the quadro was never submitted to the company. So imagine, and they were divorced like 20 years, I think. So we couldn't do the work. That was an actuary that had to figure out, they had to go back [00:46:00] and figure out.

It was so expensive for this couple, but imagine if wife didn't want to sign it because she was younger. She could have really, she could have really said I'm away. I can't sign it up. But imagine having to find your ex spouse 20 years later so you can retire. Nightmare. That is 

Heather Quick: insane. Yes, a nightmare for sure.

And that is one of the things like, you know, and with learning this information during the divorce and having the advice so that if there are things you need to do afterwards, um, you do need to do that. And particularly, you know, that's why In trying to understand what these tax implications are going to be, because that is a, that's a bitter pill to swallow afterwards.

And, um, and you didn't know, you didn't see it coming and there's really nothing you can do about it. You know, you should have figured that out before you agreed to whatever settlement. Exactly. 

Karen Chellew: Yeah. And we find that so many [00:47:00] people don't even have. The knowledge of their marital estate in enough time to consider all of those details, right?

They're going to mediation and they've not even seen the outcome of all of their, um, you know, either mediators work or attorneys work, or maybe they just chose to put their head in the sand and not be a part of the process thinking their attorney was going to fix it or right? Or the mediator is going to take care of it.

And I'm, you know, I'm just, you know, I hired my people and somehow I'm going to get all that's due to me. So, um, you know, doing the preparatory work as we're all talking about today is so essential for anyone going through the divorce process. There's so many nuances and so many layers that kind of like an onion, you know, when you start to uncover all of these things, more considerations appear and it's important that you take those necessary 

Heather Quick: steps.[00:48:00]

Absolutely now, I think I don't know if I felt like we mentioned it earlier in the show, but I do want to ask if you'll explain how does the change in your marital status affects your tax landscape? So. Your divorce and things, you know, as far as if you are working, some things you need to do and some things you need to think about now, right, for your 2024 taxes next year.

If like, say, you're divorced right now, today, so we know you'll have to file single. Um, but some things you need to think about, um, to help yourself. 

Catherine Shanahan: Well, um, before you go file single, see if you can qualify to file head of household because that's your next best status. Okay. You know, first married filing jointly.

And typically the IRS rule with that was that if you had your children, so many, I think, I don't know the percentage you'd have to check that. But a majority of the time that you could claim that, but your spouse might be running to claim it first. [00:49:00] Um, so I would not just mark off single. I would do head of household there.

And then he would probably I don't know. That's just prep planning would be make sure that you're. Preparing if you owe taxes, right? So some people don't budget that into their monthly budget and then here you come. At tax home and you owe all this money because you didn't have the right exemptions on your w 4 So just make sure that you're putting away enough to cover any taxes that are due And then make sure that you're reconciling if you have an agreement that you're getting something net of taxes from your spouse Make sure you have your system in place to get that reconciled before you pay anything that you shouldn't pay.

Heather Quick: Now, what about, what should they be looking for, on their W 4, with their employer? Is that something you can change mid year? And what kind of things should you know? Because you said you won't, you don't have the right exemptions, or you didn't have that 

Karen Chellew: on there. [00:50:00] Yeah, so that's something you would definitely want to talk about with your accountant, not only relative to your W 4, which is really important because so many people get that W 4 annually or Not even annually anymore, and they don't even know what they're putting down.

Right? It says 0 if you have a dependent 3, but it really should be a conversation with someone who can project that out for you based on the income. That you're getting your earned income, your passive income to Catherine's point, if you're getting, uh, executive compensation benefits, what would be the tax implications be for that?

Do you need to pay interim taxes or quarterly taxes? Can you maximize your contributions to your. Employers plan to reduce your tax exposure. Those are very, very important conversations to have with an accountant and your relationship with your accountant, especially right after divorce [00:51:00] should be in the tax planning stage early on about October and November.

Or January and February if you're getting divorced in so they can project, but there's planning at the end of the year and you don't want to get on a wait list with your accountant because by the time January hits their full steam ahead and tax preparation and they're kind of out of tax planning mode.

So those conversations are really important to have, especially as you're moving forward in a new tax is a tax bracket. Okay. 

Heather Quick: So yeah, 

Catherine Shanahan: now, um, do you guys remember when you first got your first job and you got that w four and you went to your parents and you're like, Oh my God, what do I put here? What, you know, I don't, I don't know what I'm supposed to put in.

I remember my kids asking me, you know, so a good rule of thumb is what the question to ask yourself is, would you rather have money withheld because you're not a good saver and this is the best way that you can save it. So it's a [00:52:00] forced savings almost. So if they would, if they withhold too much, And then at the end of the year, you get a thousand dollars back and you can use that.

Oh, wow. And you look in your bank account and you realize you never saved a thousand dollars by yourself. So that's a good thing. The other rule of thumb is why would I let the government hold my money? If I'm getting a thousand dollars back, I rather, I rather have, uh, less money taken out of each pay because I'm going to save on my own.

So ask yourself that first question before you go to your accountant or go to your HR department and say to yourself, am I a good saver or do I need this for savings? And then fill out how many exemptions you should have for yourself moving forward post divorce. That is great 

Heather Quick: advice, as well as your accountant, and explain to your accountant what the, you know, if the two of you did come to an agreement on the division of the children and who will be claiming them, right?

Because the accountant may be like, okay, you have two kids [00:53:00] and just not really process. So no, it's important. Show them your divorce decree. So that they can understand, Oh, you don't, you don't get your to claim the exemption every year. It's every other year or because that will make a big difference in that you may, um, you may not know to share with them.

I think that's really important. And I appreciate that advice. Yeah. Talking to that kind of early and explaining, cause I don't think you'd get, you see your W 4 again after you started a job, right? They're not like here, look at this every year and think of it's right. No, no, no. I don't, I don't think that happens they're supposed to.

Very often. I don't think it happens 

Karen Chellew: very 

Heather Quick: often, but anyway, yeah, it's important. So advocate for yourself because that's a bill that you're going to be responsible for and you don't want to not pay that one for sure. Um, now, um, I, um, as we round up, what a great conversation today. I so appreciate having you both on.

Um, But I would really like, [00:54:00] and I'd like for each of you to, um, impart on our listeners what you've learned about divorce and working with women throughout your career. 

Catherine Shanahan: Gosh, women inspire me. You know, I, you know, we're, we're two women who are helping women and now men, but you know, we started out just wanting to help women and, but the women that come through now, they come through really unorganized, scared, uh, frustrated, all of the above.

And, um, when we see them go through our process, they sit a little straighter, they talk a little different, um, and they really conquer a lot of toughness, um, through realizing how resilient they actually are. And when you realize that you're stronger than you think. It just changes the rest of your life.

So I get so inspired by watching them grow. Through and it just fuels us to keep doing what we do because there's knowledge to me and divorce [00:55:00] is absolutely everything. Um, to see them do that is inspiring. 

Karen Chellew: I love that. You said that Catherine, because I, too, I'm inspired by pretty much every client that comes our way.

And it makes me think about, you know, when we 1st meet them, they're scared, they're afraid. There's women. We're all just so hard on ourselves. It's incredible. So some of our early conversations are just remember to give yourself a lot of grace like every day. Just give yourself a ton of grace. This is hard.

This is not easy. And the early part of divorce is even extra hard because it's so tedious. But give yourself grace, give yourself 1 step at a time. Own the knowledge that you're gaining one step at a time. Don't worry about what other people may think, what other people are saying, [00:56:00] you know, the, the harsh words from opposing counsel or your spouse, let that be their issue.

And you wake up every day, doing what you do in your truth and moving forward. And then from there, that's when we do see them emerge into what Catherine was talking about their ability to be very effective at, you know, essentially being the CEO of their new life. 

Heather Quick: That is awesome. Thank you both so much.

And this has been a great, great conversation. I've learned a lot. I know our listeners have as well. So thank you both very much for being here today. Thanks for having us. Thank you. Absolutely. And lastly, um, where can our listeners, uh, find you both for more information and resources? Pretty much anywhere you look.

So our website is www. 

Karen Chellew: mydivorcesolution. com. We're on Facebook, [00:57:00] Insta, Twitter, LinkedIn. Um, our podcast is on any, uh, channel where you listen to podcasts. We're on YouTube. We really like to get our information out there because we truly believe that information and education is essential and critical, um, when going through the divorce process.

Heather Quick: Well, thank you and you and I think we mentioned it earlier, but you work with people all over right? Because you can do this. It's all virtual and there's you have everything available for anyone to reach out to you. Is that 

Catherine Shanahan: correct? Yes, we're in every state and we're actually in a few different countries now.

So it's pretty exciting. That's amazing. 

Heather Quick: Wow. That's wonderful. Oh my gosh. I, that, I was thinking just the other day, I would love to learn more. It's on our list, right? Of divorce in other countries. Just right. It's very, so much in the States, but not a ton, but there are, you know, definitely variations. So, wow.

That's [00:58:00] amazing. Yeah, ladies, other countries. Wow. Um, well, this has been great. Appreciate you both so much and all that you are doing. What a great company that I know, uh, is making a big difference, uh, for, for women and all over, uh, the country going through a divorce. So thank you again. Thank you.

Absolutely. And for our listeners, thank you for joining us today. We've reached the end of our show and if you or someone you know is going through a divorce or is thinking about a divorce, please reach out to us at floridawomenslawgroup. com or join our Facebook group, Women Winning Divorce. Links will be in the episode description as well as all the links for Karen and Catherine's business as well as their social media.

And as always, we would love your feedback. And if you have enjoyed today's show, we would ask that you leave us a five star review so others can find us. And thank you for listening.

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